New Housing Data: Are Sellers Caving Too Early?

By AnnaMaria Andriotis

New data suggests that many Americans have given up on a rebound in the housing market and are selling their homes at a discount. Are they making the right move?

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According to figures released this morning by the National Association of Realtors, the median sales price of homes dropped more than 3% to $165,400 in September, but house sales increased over 11% to a seasonally adjusted annual rate of 4.91 million units from a year ago. While that bump up in sales may be good news for the struggling housing market, analysts say it also suggest that many sellers are lowering their asking prices to unload the properties. They point out that many sellers are facing increasing competition from foreclosed homes that are selling at steep discounts. In fact, more than one-quarter of all home sales listed earlier this month on Trulia.com, a real-estate listing site, have had a price cut — about the same as last year, though sales are significantly up since then. “It doesn’t matter if home sales increase — it’s still a buyer’s market,” says Stu Feldstein, president at SMR Research, which tracks the housing market.

For those looking to sell, the current housing market provides no easy answers, say analysts. Holding out for a rebound in house values may not be an option, particularly for those who are at risk of falling behind on their mortgage payments. On top of that waiting may take a while: Any significant increase in housing prices for many parts of the country is unlikely to occur until for at least two years or as long as five years, estimates Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. In some hard-hit regions like Jacksonville, Fla., Las Vegas and Nevada, it may take even longer.

Would-be sellers who are on still on the sidelines face other risks, say experts. For example, there are the extra expenses homeowners will incur, such as property taxes and maintenance bills, while living in the house, says Dominick Prevete, regional vice president at Weichert Realtors. They might also need to keep pumping money into repairs, he adds, with the aim of selling it at or near the asking price when the house eventually goes on the market.

Home sellers who decide to bite the bullet should focus on pricing their house at a realistic and appealing price, says McCabe. Even in the most ideal situation, they should consider pricing the home at the average price of similar properties in the area. To attract immediate attention, pricing slightly below the average asking prices is likely to bring in more buyers and move the home faster, he says.

The biggest risk would-be sellers face is holding out only to sell in a market that’s even less favorable. That’s already happened in some markets. Sellers in some cities are now doing more price cuts than they were a year ago: in New York, for example, 29% of properties listed on Trulia are discounted — meaning they’ve had at least one price cut — up from 22% a year ago. In Atlanta, that’s up to 39% from 32% a year ago. And in Indianapolis: a whopping 41%, from 32% a year ago.

Though the factors vary by city, foreclosures and tighter lending requirements are pushing sellers to the brink, say analysts. Most cash buyers — which account for about a third of all home sales — are purchasing distressed properties, including foreclosed homes and short sales, which are priced at roughly 20% less than similar non-distressed properties, says a spokesman at the National Association of Realtors. They’re not looking to make a deal with a regular home seller since it would mean spending more money, he says.

Separately, banks are requiring appraisers to do a more thorough analysis of homes. And because so many homes are foreclosures, these values are dropping — forcing many sellers to reconsider their asking prices. Roughly 33% of realtors reported contracts being canceled, delayed or renegotiated to a lower sales price for the three months ending August as a result of lowered appraisals, according to the NAR.

Comments (5 of 13)

Home prices are still a bubble compared to historic norm. According to case shiller index, we are still 20% above long term averages. Typical bottom comes at 20% below average. But this is not your typical recession. This is a deflationary crash. This is Great Depression material. These averages themselves are based on a money supply that was inflated by borrowing for many decades. When the money supply deflates, existing prices and salaries cannot be sustained:

Today the debt problem is much much bigger than the days of Great Depression. Whatever you do, do not get into debt. If you want to buy, buy cash down. Even if prices do not fall, in many cases, rent is cheaper if you consider mortgage interest, property taxes, condo fees, maintenance, lost interest/investment income…

4:22 pm October 22, 2011

ReaItorOne wrote:

Well Steve it’s worth much much less than you think.

9:21 am October 21, 2011

SteveFromBoston wrote:

My house is my home. I have a great spot in the spare room where we marked the kids heights over the years. We have a spot on the window sill near the back door where Rudy the dalmation and now Sandy the dog from the shelter scratched the wood away waiting for us to open the door when we come home.

There’s the spot in the basement that leaks when we get a bad rainstorm and there’s the big window in the living room that we can look out and see the snow and who’s driving down the street and sometimes see the neighbor’s kids riding their bikes.

My house is my home, it really doesn’t matter to me what someone on Wall Street thinks our house is worth.

9:32 pm October 20, 2011

Will wrote:

Maybe rather than just trying to sell for a figure, if sellers take the approach of trying to find their home a good home, a right match, then the right figure will show up.

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